These three stocks are all in uptrends, and near a buying point, as the price has pulled back to support. During a trend, the pullback provides an opportunity to buy a stock at a bit of a discount relative to where it recently traded. Buying during a pullback requires some strategy and planning, though. Consider buying a pullback only in the vicinity of support. If the rising price has been bouncing off a trendline, the trendline can be used to indicate support areas. The price should also "slow down" in the support region. Don't catch a falling knife; let the selling slow before stepping in to buy. Here are three current examples of potential buying opportunities, along with how to control risk and take profits.
TAL Educational Group (XRS) is respecting a rising trendline going back to August. The price has bounced off the trendline four times and is currently testing it a fifth time. In April, the stock hit a high of $60.44, before pulling back to trendline support. Between May 13 and 20 the price has been consolidating between $54.86 and $52.52. A rally above $54.86 helps signal support is still holding and presents a buying opportunity. A stop loss can then be placed below $52.52. Alternatively, a long trade can be taken within the consolidation. Based on the rising trend channel, resistance is likely between $60 and $61; that is where to take profits.
Taiwan Semiconductor Manufacturing Company Limited (TSM) is in an uptrend extending back to the August low ($17.32). In March, the stock hit a high of $26.62 and has been pulling back since. Trendline support intersects near $23. The stock hovered near support throughout May, before jumping 2.84% on May 20 to close at $23.91. The high bounce indicates there is still support in the $23 region. Consider an entry between $23.91 and $23.20, with a stop loss below the May 12 intraday low of $22.75. Based on the rising trend channel, if a rally develops from here it will likely meet with resistance near $27.50. Consider placing a profit target just below that potential resistance area.
Hawaiian Holdings Inc. (HA) launched into an uptrend in August. In April, the stock hit a high of $50.95 and has been sliding lower since. Trendline support intersects near $38.50, which is below the May 20 closing price of $41.31. Throughout May, the price is hovering above $40, showing that $40 is also a support region. Ideally, wait to see if the price pulls back to the $38.50 area and consolidates there. If the stock price consolidates in the vicinity of the trendline, enter long when price breaks above the high of the consolidation. Place a stop loss below the consolidation. If the price doesn't slow its descent near the trendline, avoid going long. Consider taking profits near the top of the trend channel at $54.
The Bottom Line
These stocks are in well-defined uptrends and have pulled back to trendline support. Trendlines are one way to estimate entry areas. The price should slow down in the area of the trendline, though, confirming the trendline (area) is, in fact, providing support. Control risk with a stop loss, and exit profitable trades near the top of the trend channel. The top of the channel is where the price has tended to reverse in the past. Therefore, it's a useful gauge for when to take profits. Only risk a small percentage of your trading capital on any single trade.
Disclosure: The author has no positions in the stocks mentioned.